Japan’s economy has been characterized by deflation, stagnation and diminishing global importance for most of the last three decades. However, recent events suggest that this narrative is changing. Between 1991 and 2021, Japan’s annual inflation rate averaged just 0.35%. Still, inflation has topped 2% every month since April 2022. In a landmark move, the Bank of Japan (BoJ) raised rates for the first time in 17 years in March, signaling the end of the world’s latest experiment with negative interest rates. The BoJ is due to consider another rate hike at its upcoming meeting later this month.
These developments suggest that Japan’s lost decades may finally be behind them. In addition, Japan’s blue-chip Nikkei stock index hit its highest level since the bubble era in February, while the broader Topic index hit its highest since 1990 last week. Taiwanese semiconductor giant TSMC is investing billions of dollars in new manufacturing facilities in Japan, signaling a growing trend of technology companies flocking to the country.
Looking ahead, there are different perspectives on what the future holds for Japan. Some see this moment as a newfound opportunity. Optimists believe that Japan is really coming back this time. Morgan Stanley, a prominent bank, is praising a “revitalized Japan,” predicting that higher inflation and a more dynamic business landscape will propel the country toward sustained growth. This trajectory could help Japan manage its public debt and maintain its status as one of the world’s leading economies.
However, others are more cautious about Japan’s future prospects. They argue that despite recent economic improvements, there are still significant challenges to overcome before sustainable growth can be achieved on a long-term basis. One major concern is aging population and labor shortages which will make it difficult for companies to find enough workers to meet demand for goods and services